4 Things Macy's Management Wants Investors to Know

Macy's (NYSE: M) has slowly cemented its comeback. The retailer, which had to close stores as retail competition intensified, has apparently righted its ship, and recently issued strong second-quarter results.

The company reported $0.53 in fiscal second-quarter 2018 earnings per share, up from $0.36 in the year-ago period. Comparable-store sales were flat for the quarter on an owned basis and rose 0.5% for owned and licensed stores. "Comp" sales are up 2.3% company-wide, however, for the first half of the year.

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"It is encouraging to see the continued strengthening of our brick & mortar business where we saw trend improvements across the portfolio, led by our Growth50 stores," said CEO Jeff Gennette in the company's earnings release. "The combination of healthy stores, robust e-commerce and a great mobile experience is Macy's recipe for success."

Gennette shed more light on his company's plans during management's Q2 earnings call, which was transcribed by Seeking Alpha (registration required). The CEO offered some perspective on the numbers and shared some insight on his plans for the future.

The quarter was better than it looked

On the surface, Macy's comparable-store sales numbers don't look all that impressive. They get better, though, when you adjust for a change in the company's promotional calendar. Gennette explained:

Essentially, that change moved some business from the second quarter into the first quarter. That makes it more logical to look at the strong six-month number as the true comparison.

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Digital growth continues

The Macy's turnaround plan, dubbed the "North Star Strategy," involves developing the company's omnichannel capabilities. This includes in-store improvements as well as increasing focus on its digital operations, and the effort appears to be paying off.

"Our digital business clocked another quarter of double-digit growth, including a very strong July," Gennette observed. "And we continue to see increased engagement with Macy's mobile app. Sales were up more than 50% on our app in the first half of the year versus last year."

Gennette credited some of the success to "an elevated assortment with a heightened focus on fashion through our merchandising initiatives."

More openings are coming

While Macy's has closed underperforming stores, it has also opened its discount brand "Backstage" inside some of its stores. That expansion is continuing.

"We opened 47 Backstage stores in the second quarter for a total of 65 opened in the first half of the year," the CEO said. "We're now on track to complete 120 openings this year. This includes the expansion of backstage to the West Coast and to some of our premium doors."

Gennette also praised his team for how they have opened the in-store units without greatly affecting ongoing operations. He indicated that all work on this year's openings will concluded by the end of the third quarter -- something that positions the company well for the busy holiday season.

"Based on the ongoing sales lift we see from 2016 and 2017 Backstage locations, we feel good about our on-mall off-price strategy," he added. "Adding Backstage makes existing stores more productive, gives our customers an exciting new experience, and will bring new customers into the brand."

Digital selection is expanding

Macy's has made the smart decision to not limit its website to the products and brands it sells in its stores. Instead, it's using its digital storefronts to offer more merchandise it believes customers will like.

"By the fourth quarter, our customers on Macy's.com will have access to a significantly expanded assortment," Gennette said. "This includes more selection of products from great national and private brands that Macy's is known for, plus the addition of new brands and categories that we know our customers will love."

A stronger Macy's

Gennette seems to understand that transforming Macy's is not a project with an end date, but an ongoing process that will change over time. So far, though, he has made the right moves and put the company back on a growth path. That's impressive given the ongoing struggles many malls are facing. It appears that Macy's is positioned to continue its comeback and solidify its standing as a long-term retail player.

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